Katie LenziniFebruary 9, 2011

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On the Horizon

QuestionWhat was the significance of the Corporation

for Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers?

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Answer

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Today’s Discussion1. Market Outlook2. Life Insurance Trends3. Annuity Trends4. On the Horizon

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Market OutlookStrengths

Economic climate improved from 2008 Surviving companies stronger

Increased capitalReduced expensesPotential opportunity in middle market

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Market OutlookWeaknesses

Dependency on US, global economiesDiscretionary incomeRiskier and more complicated productsNon-insurance competitors (banks,

telemarketing, internet)

Overall Outlook = Stable (upgraded from Negative Q2 2010)

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Market Outlook Qualities of Top Insurers

Strong brand nameBroad & varied distribution channelProduct diversityTop quality serviceAdvanced technologyPricing power

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QuestionWhich life insurer held the most assets at

year-end 2009?

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Answer

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Market OutlookUncertainties

InvestmentsInterest RatesDistribution

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QuestionWhere do you go for consumer information?

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U.S. Individual Life Sales Trends

2/9/2011 12Source: LIMRA’s U.S. Individual Life Insurance Sales Trends, 1975-2009

Term Life InsuranceMost popular productFrom insurer’s perspective:

Competitive marketLittle flexibility in premium changesSensitive to mortality

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Whole LifeHigh level premiums, not flexible for

policyholderFrom insurer’s perspective:

Mutual company uses dividends to reflect experience

Profits affected by mortality, interest, expenses, and persistency

Resurgence in popularity

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Universal LifeFlexible premiumsUnbundled productSecondary Guarantees

Specified PremiumShadow AccountsConcern over profitability & level of reserves

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Variable Universal LifeSales followed stock marketPeaked in 2000

Equity-Indexed UL

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Variable Market Share

2/9/2011 Source: LIMRA - The Future of Flexible Premium Products 17

U.S. Individual Life Annualized Premium Market Share

2/9/2011 18Source: LIMRA’s U.S. Individual Life Insurance Sales Trends, 1975-2009

Life Insurance OwnershipPercentage of Households

2/9/2011 19Source: LIMRA Household Trends in U.S. Life Insurance Ownership

Life Insurance OwnershipAmount of Life Insurance

2/9/2011 20Source: LIMRA Household Trends in U.S. Life Insurance Ownership

Annuity TrendsVariable or FixedDeferred and ImmediateTax-qualified available

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Annuity Sales Trends ($bil)

2/9/2011 22Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual Annuities

Variable AnnuitiesSales following stock market trendsGuarantees on account value

Guaranteed minimum death benefit Guaranteed living benefits

Accumulation Withdrawal Income

From insurer’s perspective:Risk management and hedgingAsymmetrical riskRevenues derived from % assets

When stocks decline, so do revenues collected

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Fixed Annuities – DeferredGuaranteed interest ratesSpread from fixed account earnings rate

Equity IndexedGrowing market

share

2/9/2011 24Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual Annuities

Fixed Annuities - ImmediatePoor salesOpportunity for growthMitigate post retirement uncertainties

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QuestionWhich state was the first to forbid gender

discrimination in insurance rate-setting?

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Answer

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On the HorizonRegulationPrinciple Based ApproachBaby boomers

LTC combination productsLongevity insurance

Pandemic ScenarioLife SettlementsGenetic Testing

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Katie LenziniState Farm Life/Health ActuarialKatie.Lenzini.QVBL@statefarm.com

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